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Why Investors Are Shrugging Off Amag Pharma's Feraheme FDA Rejection

By: Adam Feuerstein | 01/22/14 - 11:54 AM EST

Amag Pharmaceuticals (AMAG) received a nastygram from the FDA Wednesday, rejecting an application to expand the use of the company's intravenous iron product Feraheme to treat a broad spectrum of patients with iron-deficiency anemia (IDA). According to Amag, regulators were unhappy with Feraheme's safety profile and dosing, and have asked for additional clinical data. 

Yet in mid-day trading Wednesday, Amag shares are only down 7% to $20.40. The stock is not getting scalped like we often see with other FDA rejections. What gives?

Investor expectations for a better outcome were low: At last week's J.P. Morgan Healthcare Conference, Amag executives told investors they were more hopeful than optimistic about FDA approving Feraheme for the larger IDA indication. 

The Amag bull story is not Feraheme sales expansion but M&A and tax inversion. In addition to walking back Feraheme expectations, Amag management is also telling investors that they're looking to in-license new products or acquire entire companies that can leverage the company's existing commercial base. 

Better yet, Amag has been suggesting the deal(s) it's looking to make will have beneficial tax implications for the company. Translation: Amag hopes to buy products or companies that will reduce the amount of money the company sends to Uncle Sam each year. 

"Inversion" -- the relocation of corporate headquarters from the U.S. to more tax-friendly countries like Ireland -- is a big buzzword in specialty pharmaceuticals circles these days. Jazz Pharmaceuticals (JAZZ) inverted when it acquired Ireland-based Azur in 2011 and then used its new Irish domicile to reduce the cost basis of its more recent Gentium acquisition. Perrigo  (PRGO) inverted by acquiring Ireland-based Elan last year. And so did Alkermes (ALKS), which moved its headquarters from Cambridge, Mass to Dublin by buying a separately managed drug delivery technology unit of Elan in 2011.

One needn't make the jump directly to Ireland, either. Endo Health Solutions (ENDP), based in Malvern, Pa, is acquiring Canada-based Paladin Labs as an intermediate step before reincorporating the merged companies in Ireland. 

Amag is said to be pursuing the same inversion business development strategy, which may not be good for U.S. tax receipts but is something Wall Street likes.

By the way, I hear embattled Questcor Pharmaceuticals (QCOR) is also considering a tax inversion strategy. Stay tuned. 

-- Reported by Adam Feuerstein in Boston.  

Follow Adam Feuerstein on Twitter.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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